This month, Ian Potter looks at whether the better prices might present a time to catch breath and consider your future in milk production, warns that improved efficiency gained through necessity should be sustained, and finally takes a look at the latest free range milk launch.
Recently I spoke to a couple of leading dairy cow auctioneers to try and determine whether the run of price increases had resulted in a noticeable reduction in the number of dispersal sales compared to 2015 and 2016, on the premise that some farmers perhaps have decided to carry on now that better times have arrived.
I was, however, slightly surprised to learn that the majority of farmers wanting or needing to exit accept that volatility is here to stay, and that many are now seriously considering getting out now cow values are higher. When values were around £750 a head – just £100-£150 above the cull value – they wouldn’t sell, but values are up around £300-£350 to around £1100 now, and this is encouraging many to consider quitting.
Others only just managed to keep afloat, particularly when prices dropped below 20ppl, and it is now clear terminal damage was done. The feeling is that significantly increased herd values will result in some going into early retirement, or at least hanging-up the clusters, especially those with no-one to follow on.
That last price slump went beyond the feeling among many farmers that quitting was in some way letting the family down. Many sons and daughters witnessed what their parents went through and they don’t want to go through it themselves.
The good news is that if this is going to be the direction of travel, at least the farmers involved have control of the situation and their destination, rather than waiting for crippling prices to force a decision on them. So my message to those sitting on the fence is this – please don’t suffer in silence, and if you decide to quit then treasure the memories before it is too late.
I hope lessons were learned from the last slump and that farmers don’t have short-term memories as to what happened, especially how their milk purchaser treated them. In addition, now that prices are knocking on the door of 30ppl, please think twice before you swallow the idea that putting on extra cows will automatically translate to a better lifestyle, even though it is in a dairy farmers nature to expand.
For those who remain in the industry what is needed now is discipline. Most of you have ruthlessly reduced cost and maximised milk from grass, so don’t throw that knowledge and experience to the wind now that milk prices have increased, but use them to regain lost income and start to build a war chest for the next big downturn. It will come sooner than you expect, it will hurt, and it could easily be another three-year slump.
The liquid premium is a rural myth and an unfortunate hangover from the old MMB days. Retailers, together with some processors, have certainly put the final nail in its coffin, ensuring liquid milk is commoditised with limited opportunity to add value.
Every man and his dog processor fights for every litre of liquid business, and for those involved with the likes of Tesco it’s even on open book accounting terms. The retail giant knows exactly what other contracts its processors have and at what price (or at least it thinks it does!).
One idea to restore a liquid premium is the recent launch of free range milk and its intriguing idea of a ‘Black Top promise’. I am not a marketing guru and personally I struggle with the Black Top idea because to me the colour black conjures up images of death, funerals and darkness. However, the launch has certainly stirred things up a bit in the industry.
Good, bad and ugly
I was surprised to hear the people behind the launch categorised our main retailers into ‘good, bad and ugly’, having accepted that in order to sell volume they need to sell via retailers.
I don’t believe it’s a good idea to openly criticise established retailers when launching a new product, especially if you want or need them to open their door to you. Morrisons was classed as ‘ugly’ at the launch, on the basis that its Milk for Farmers initiative does not see all of the 25ppl going back to British farmers.
There is no need to debate that further as you all know my thoughts. If I were the sales person for Black Top milk I think I would delete Morrisons (‘ugly’), Asda and Co-op (both ‘bad’) from my contact list because their response is likely to end with the word ‘off’. Now Brexit. Every paper you open has an article on it.
As we negotiate trading terms post-Brexit for the dairy industry, a key goal has to be to replace imports, particularly of cheese. That sounds straightforward but remember we have a processing industry dominated by non-British influences and connections such as Arla, Muller, Glanbia, Paine and Partners (aka Meadow) and First Milk (which has a sales deal with the Irish).
On the cheese side we have a selection of quality farmhouse cheese producers to be proud of, and which should be looking to scale-up to replace imports from mainland Europe and Southern Ireland. But having stated that, let’s face reality – those imports are mainly from importers who have what some would term an unhealthy hold on our cheese industry.
That makes displacement of foreign cheese more challenging. Finally, following the release of Meadow Foods annual results for the year end March 31, 2016 – in which managing director Simon Chantler received a thumping £2.3 million for the second consecutive year – numerous readers suggested I compile league tables showing which milk processors make the most profit per litre of milk (Meadow’s is 2ppl), and another one for the top paid person in each business.
Thanks for the idea, but no thanks! Perhaps AHDB would like to pick up the challenge?